Wholesale Lending for Private Hard Money Loans

How Wholesale Lending Works in the Private Mortgage Industry

Wholesale Lending in private and hard money loans is essentially a loan originator using capital from another lender to fund the loan. The loan originator could be a mortgage broker who never uses their own capital, or it could be a private lending company that does have their own capital for most loans, but they use wholesale lending for some of their loan programs.

For the rest of this article we’ll refer to the loan originator as the “retail lender” since they are public facing and have a relationship with the borrower. They take the borrower through the entire loan process, and when the loan is ready to close, the money is wired into settlement by another company – the wholesale lender.

Although the wholesale lender doesn’t communicate with the borrower directly, they are typically involved in the loan process so they can underwrite the loan alongside the retail lender. Even after the loan is funded, the communication typically goes through the retail lender since they want to maintain and control the relationship with the borrower. The wholesale lender always services the loan, meaning they collect the payments, send notices and manage the payoff.

In the conventional mortgage world, the terms “wholesale” and “correspondent” mean that the retail lender funds the loan with their own balance sheet and immediately sells to the secondary market. In the private hard money world, a number of companies call their wholesale lending a Correspondent Program.

You’ll also hear the term “White Label” to describe a wholesale program. This term means that the wholesale lender’s identity is hidden, so the borrower may not know that the retail lender is not using their own money to fund the loan.

Many companies prefer the term “Table Funding”, although this term is avoided by lenders in California.

Why Originators Should Use Wholesale Partnerships

There are many private hard money wholesale lending programs available to loan originators, and many of them are very easy to qualify for. The loan originator must be a mortgage professional and show a track record of loans they’ve brokered or funded. Almost all wholesale lending programs these days don’t require the originator to contribute any of their own capital to the deal, and there is no requirement in terms of loan volume. So it’s available to mortgage brokers and direct lenders.

Wholesale lending can be a great way for private hard money lenders to close more deals. Even for direct lenders who fund from their own balance sheet, wholesale partnerships can help with client retention. For example, let’s say you’re a direct lender only offering fix & flip projects in your local market, and all of these loans are funded from your own balance sheet. One of your long-time clients wants to start flipping houses in another state that you’re not willing to lend in. Instead of referring the client to another lender, you can originate those out-of-state using a wholesale program and still maintain the relationship.

A more common scenario is a real estate investor decides to hold the property as a long-term rental instead of flipping it. You can partner with a wholesale lender that offers 30-year rental loans and earn points on that deal. You can even find wholesale lending for ground-up construction loans.

Read Our Guide About Wholesale Lending